[Altos Weekly Traders Edge] Is Tech the Next Growth Bubble...Details Inside

Sponsor [Investing Wizard Who Turned $37K Into $2.7M in Just 4 Years Makes His Next Big Move]( He started from nothing and became a multimillionaire... He's now one of the most sought-after trading experts... Yet he operates 858 miles from Wall Street. And now, he's revealing his #1 favorite strategy that targets MASSIVE weekly profits with just one stock ticker. [SEE THE PROOF HERE]( Echoes of the Nifty Fifty: Are the Magnificent Seven the Next Growth Bubble? Weekly Market Overview Hi Traders, In recent years, we've witnessed the rise of the "Magnificent Seven" – a group of tech giants that includes Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta. These giants have captured the imaginations of investors, garnering media attention and widespread popularity. This phenomenon isn't entirely new. Over five decades ago, the "Nifty Fifty" captivated Wall Street. These were blue-chip, high-growth companies considered the pinnacle of American business. Investors poured money into these stocks, confident in their enduring dominance and seemingly boundless potential. Interestingly, despite the Magnificent Seven's meteoric rise, they weren't part of the original Nifty Fifty era. Yet, some striking parallels exist, particularly with regard to lofty valuations and the narratives propelling investor enthusiasm. The Nifty Fifty experience, particularly the aftermath of its dramatic fall, offers valuable lessons about valuations, earnings growth, and the potential for bubbles. Will the Magnificent Seven ultimately follow the same trajectory, or will their sky-high valuations prove justified? Understanding the Nifty Fifty Phenomenon To grasp the comparison with the Magnificent Seven, we need to revisit the Nifty Fifty. Born in an era of post-war economic boom and unbridled optimism about American capitalism, these stocks promised exceptional growth. Companies like Coca-Cola, Kodak, McDonald's, Philip Morris, and Walt Disney embodied this promise. Investors, caught up in a wave of euphoria, were willing to pay extraordinary premiums. Traditional notions of value seemed to vanish, replaced by a singular focus on growth potential. The rationale was that these companies' earnings trajectories were so strong that their valuations, while steep, would eventually be justified. Unsurprisingly, this led to inflated prices and the formation of a speculative bubble. In 1973, the tide turned. Market downturns, fueled by inflation and other economic headwinds, caused investors to reassess their bullish outlook. The once-beloved Nifty Fifty stocks lost significant value, with some losing over 40% of their peak value. The Nifty Fifty's Surprising Reversal Conventional wisdom labeled the Nifty Fifty a classic bubble. Valuations had doubled compared to the broader market, and the subsequent crash seemed to confirm this notion. However, as time unfolded, a different picture emerged. Many Nifty Fifty companies ultimately delivered on their initial promise, vindicating their high valuations in the long run. Economist Jeremy Siegel, in his seminal article "Valuing Growth Stocks: Revisiting The Nifty Fifty", challenged the bubble narrative. He argued that the Nifty Fifty stocks were, in the aggregate, fairly valued in the early 1970s. Their fall was, instead, attributed to a market-wide loss of confidence rather than being fundamentally overvalued. Data backed up Siegel's argument. When analyzed over a 26-year period, the Nifty Fifty stocks generated returns in line with the S&P 500. Even more telling, their earnings growth exceeded the market by 3% annually – almost precisely mirroring the premium investors had paid for them decades earlier. The lesson from the Nifty Fifty is this: even seemingly inflated valuations can be justified when paired with exceptional growth that unfolds over time. The Magnificent Seven – Is the Bubble Real? The Nifty Fifty offers a historical lens through which to view the Magnificent Seven. We can't definitively say if today's titans are overhyped. However, just like their predecessors, they command high valuations fueled by investor belief in exceptional growth stories. It's a familiar pattern. To assess the Magnificent Seven critically, we can use Siegel's framework. Let's consider their current valuations against what their future earnings growth must look like to justify those valuations while matching broader market returns. Take Amazon. Its P/E ratio is significantly higher than the market's. For its valuation to make sense, even assuming it converges with the market average over time, Amazon's earnings need to grow exponentially – potentially at double-digit rates for a decade or more. The question is, can Amazon sustain such growth in an increasingly mature e-commerce landscape? Similar questions arise for companies like Nvidia. Given its dominance in the AI hardware race, can it maintain such a position and still expand its earnings by staggering multiples over the coming decades? The Bottom Line The Nifty Fifty teaches us that high valuations alone don't signify a bubble. What matters is whether those valuations are eventually met by the underlying companies' real-world earnings growth. The Magnificent Seven may well surprise us, as some of the Nifty Fifty did. But, like Siegel noted, the most significant risk isn't solely a matter of growth potential; it's whether investor confidence can endure. If sentiment shifts, even solid companies can see their stock prices suffer. - The Team at Altos Trading In the next article: While recent economic data may seem contradictory, the strength of the job market provides a solid foundation for continued growth. Sponsor Are you suffering from trader burnout? The fact is, many traders are going to be wiped out by the next step of the economic downturn… But Carter’s “Income for Life” initiative]( could be the alternative to the headaches and heartbreak you might experience on your own. With one straightforward two-step trade, Jack is teaching Americans of all market experience levels how they could be targeting an extra $500 each week…. And it doesn’t matter if there’s a bad CPI number if the Fed is raising rates, or, yes, even if we’re in the middle of a bank crisis. Jack unveiled every detail of his “two-step” strategy in a recent private briefing… And he’s placing one of these trades [LIVE on camera]( for you to see: By clicking the link above you agree to periodic updates from Jack Carter Trading and its partners ([privacy policy]( Ignore the Noise: The Job Market Remains Resilient At first glance, recent economic reports might seem concerning. However, a closer examination reveals an underlying strength in the American economy, particularly supported by a robust job market and indications that the Federal Reserve remains optimistic regarding the outlook. Let's delve into the factors suggesting that the 'noise' may be obscuring a more positive economic reality. Understanding the Retail Sales Drop Retail sales figures showed a sharper decline than expected in January. Closer inspection suggests several factors could explain this anomaly, making it appear worse than it may be: - Weather woes: Abnormally cold weather likely played a significant role in the sales decrease. Building materials, garden supplies, and auto parts are all categories heavily impacted by temperature fluctuations. - Gasoline price fluctuations: Falling gas prices contributed to the overall retail slump. - Seasonal adjustments: Notoriously difficult to accurately calculate in January, these adjustments may have distorted retail sales data. Beyond these temporary factors, it's important to remember that year-over-year figures remained positive. Additionally, restaurant and bar sales saw a month-over-month increase. This suggests consumer spending, a fundamental economic driver, remains healthy. Economic Expansion and the Federal Reserve Despite a few concerning figures, the Federal Reserve remains cautiously optimistic about the trajectory of the US economy. Their recent forecasts point to continued growth, albeit at a slower pace: GDP growth projection: The Fed's prediction of strong GDP expansion above inflation signals confidence in the economy's underlying strength. Rate cut signals: Statements from key figures like Chicago Fed President Austan Goolsbee and former Boston Fed President Eric Rosengren suggest that a first rate cut in 2024 is becoming increasingly likely. This reflects a belief that inflation is moving towards the Fed's target of 2%. The Job Market: A Beacon of Stability The health of the US job market remains one of the most encouraging economic indicators. - Low jobless claims: The steady decline in initial jobless claims indicates a lack of mass layoffs, even with some tech-sector job cut announcements. This paints a more positive picture than one might initially glean from news headlines. - Beyond tech layoffs: The overall health of the economy is not wholly dependent on a single sector like technology. While job losses in some industries are expected, overall employment figures offer reasons for optimism. Key Takeaways - Focus on fundamentals: Temporary fluctuations and statistical quirks can obscure the real economic picture. Analyzing underlying trends is more indicative of overall health. - Job market strength: A vibrant job market is a potent driver of economic stability, even with some turbulence in certain sectors. - Fed remains attentive: The Federal Reserve is closely monitoring economic conditions. Their confidence in continued growth and the likelihood of rate cuts are encouraging signs. Conclusion While some initial data appears concerning, a more comprehensive analysis reveals reasons to be optimistic about the economy's direction. The job market's resilience, the Federal Reserve's continued confidence, and hints of declining inflation indicate that talk of an impending recession may be premature. Sponsor [New Customers earn 5.25% APY* (variable)]( Store your money with Cash Reserve, a high-yield account built for peace of mind. New customers earn 5.25% variable APY*—that’s 13x higher than the national savings rate. ** Plus, your money’s FDIC-insured up to $2M†at our program banks and no limits on withdrawals and transfers. **The national average savings account interest rate is reported by the FDIC (as of 5/15/23) as the average annual percentage yield (APY) for savings accounts with deposits under $100,000. 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However, the publishers of the Altos Trading Alert Newsletter are not brokers or investment advisers, and do not provide investment advice or recommendations directed to any particular subscriber or in view of the particular circumstances of any particular person. Altos Trading, including its owner, does not participate in any trades issued through the alert services. Subscribers to Altos Trading or any other persons who buy, sell or hold securities should do so with caution and consult with a broker or investment adviser before doing so. Trading securities and options involves risk. Prior to buying or selling an option, an investor must receive a copy of Characteristics and Risks of Standardized Options. Investors need a broker to trade securities and options, and must meet suitability requirements. Past results are not necessarily indicative of future performance. Performance figures are based on actual recommendations. Due to the time critical nature of trading, brokerage fees, and the activity of other subscribers, there is no guarantee that subscribers will mirror the performance of the service. Performance numbers shown are based on trades subscribers could enter based on the trade alerts. Altos Trading, LLC assumes no responsibility for any losses incurred by any individual or entity as a result of trade alerts or strategies taught through courses or coaching services. 7154 W State Street Suite 169 Boise Idaho 83714 USA [Unsubscribe]( | [Change Subscriber Options](